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Time Series Analysis of Transatlantic Market Interactions: Evidence from Crude Oil and Gasoline Prices

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  • Takamitsu Kurita

    (Faculty of Economics, Fukuoka University, Japan)

Abstract

This paper investigates the interactions of spot markets for crude oil and regular gasoline in a transatlantic context. A cointegrated vector autoregressive (VAR) system is estimated using weekly time series data for spot prices of representative crude oil and regular gasoline in Europe and the US. The cointegrated VAR analysis shows that the US crude oil plays the role of long-run price leadership, influencing the price determination of the other commodities in the VAR system. Cointegrating vectors are then normalized and restricted so that the underlying long-run market interactions may be interpreted in terms of causal chains. Finally, a parsimonious equilibrium correction system is estimated in order to reveal the short-run market interactions.

Suggested Citation

  • Takamitsu Kurita, 2010. "Time Series Analysis of Transatlantic Market Interactions: Evidence from Crude Oil and Gasoline Prices," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(2), pages 157-173, August.
  • Handle: RePEc:ijb:journl:v:9:y:2010:i:2:p:157-173
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    References listed on IDEAS

    as
    1. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
    2. Takamitsu Kurita, 2007. "A dynamic econometric system for the real yen–dollar rate," Empirical Economics, Springer, vol. 33(1), pages 115-149, July.
    3. Chen, Li-Hsueh & Finney, Miles & Lai, Kon S., 2005. "A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices," Economics Letters, Elsevier, vol. 89(2), pages 233-239, November.
    4. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    7. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    market interaction; long-run price leadership; crude oil; regular gasoline; cointegrated vector autoregressive model;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
    • R19 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Other

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